The Unintended Consequences of Safety Regulation

Abstract

This study examines how risk trade-offs undermine safety regulations. Safety regulations often come with unintended consequences in that regulations attempting to reduce risk in one area may increase risks elsewhere. The increases in countervailing risks may even exceed the reduction in targeted risks, leading to a policy that does more harm than good. The unintended consequences could be avoided or their impacts minimized through more careful analysis, including formal risk tradeoff analysis, consumer testing, and retrospective analysis. Yet agencies face strong incentives against producing better analysis; increased awareness of risk trade-offs would force agencies to make unpalatable and politically sensitive choices, a prospect they would rather avoid. Further, a narrow focus on their mission often leads agencies to overlook the broader impacts of regulation. In addition, budget constraints induce agencies to prioritize new regulations over the review of existing ones. Thus, policymakers must mandate that agencies produce better analysis and subject their analyses to external oversight.

Keywords: unintended consequences, regulation, risk trade-offs, risk-risk, health, retrospective review, moral hazard, behavioral bias

JEL Classification: K23